Property tax 'encourages dodges'

THE Government regards the property industry as an 'unproductive' asset that can be milked for taxes with no adverse effect on the wider economy.

That is the one of the conclusions drawn by the authors of a new report published today, which reveals for the first time the true size and nature of the British property market.

The report claims that the Inland Revenue extracted more than £1.5 billion in stamp duty from the commercial property industry last year, prompting the creation of a range of complex tax-avoidance structures.

Report author Andrew Scott, associate professor of economics at the London Business School, said: 'The recent increases in stamp duty implicitly suggest that the Government sees property as an asset fixed in supply with no productive role, which can be heavily taxed with no adverse economic consequences.î

According to the British Property Federation, which commissioned the report, 15% of gross domestic product, or £124 billion, is accounted for directly by property, real estate activities and related financial services, as well as rent, and the sector employs two million people. Commercial property alone accounts for 5.6% of all GDP, or £46 billion last year.

The BPF hopes the figures will shock the Government out of what it perceives to be its complacent attitude towards property, and halt the upward trend in stamp duty.

Tax revenue has increased fivefold in five years with the receipts from residential transactions pushing the total Government-take to £3.7 billion in the financial year 2001.

However, there is some evidence in today's report that higher taxes are affecting the market. Although the value of commercial property transactions in England and Wales went up by 12% to £39 billion in the year to June 2001, the number of deals fell by 25% from 122,000 to 92,000.

Tax mitigation schemes have soared as well, although the true level of avoidance is not known.

Liz Peace, the new general director of the BPF, argues that if the highest level of stamp duty were cut from 4% to 2%, tax avoidance schemes would not be so commercially attractive and Government revenues would not be affected.

However, the report will make little impact on next week's Budget. The Chancellor is widely expected to close the existing loopholes in the law that enable tax dodging.